US charges against Huawei could inflame China trade talks

Tech giant's charges of violating sanctions and stealing trade secrets may sour talks set to begin on Wednesday.

29 Jan 2019 10:07 GMT

The Justice Department charged on Monday that Huawei had violated the US sanctions against sales to Iran and stolen trade secrets from T-Mobile, a US partner [Jason Lee/Reuters]

The Trump administration's announcement of criminal charges against the Chinese tech giant Huawei has complicated high-level talks intended to defuse the trade war between the United States and China.

On Monday, the Justice Department charged that Huawei had violated the US sanctions against sales to Iran and stolen trade secrets from T-Mobile, a US partner. Those charges cut to the heart of some of the Trump administration's key complaints about China's trade practices.

China's top trade negotiator, Vice Premier Liu He, arrived in Washington on Tuesday and will meet President Donald Trump during the two-day talks set to begin on Wednesday.

Analysts said it may be difficult for the two sides to reach an agreement. Unless some sort of accord is forged by March 1, the US tariffs on $200bn of Chinese imports are set to rise from 10 percent to 25 percent.

Representatives of US business groups privately raised concerns that the administration's actions could poison the atmosphere between the two sides. Any backlash in China against the indictment of Huawei, one of the country's global powerhouses, could limit Beijing's ability to agree to anything that might be seen as bowing too willingly to US demands.

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The Justice Department has also charged Huawei's chief financial officer Meng Wanzhou. The US is seeking to extradite Meng, who has been held in Canada since December 1.

White House spokesperson Sarah Sanders was asked whether the criminal charges against Huawei were linked to the trade talks with China and amounted to a carrot-and-stick approach.

"No, those two things are not linked," she said. "They are a totally separate process."

Low expectations

This week's negotiations were already facing low expectations.

"We are anticipating no big outcomes this week," Erin Ennis, senior vice president at the US-China Business Council, said on Monday before the Huawei charges were announced.

The Trump administration, with support from US businesses, wants China to make fundamental changes to its economy that the latter is reluctant to accept and that will be difficult to verify, analysts say. The administration has accused Beijing of deploying predatory trade tactics, ranging from requiring American and other foreign companies to hand over technology in return for access to the vast Chinese market to outright cyber-theft.

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Robert Lighthizer, the US trade representative and lead negotiator in this week's talks, wants China to toughen its protections of intellectual property and to stop unfairly subsidising its state-owned enterprises.

But Chinese officials deny that they force US companies to transfer technology. And they regard the support of their state-owned companies and the acquisition of cutting-edge technology, much of it from abroad, as vital to China's economic development.

US companies in China say that forced technology transfers typically happen at the local level and stem from informal pressure by Chinese officials, which would make it difficult to verify whether Beijing has complied with any major agreement.

Little progress

Previous rounds of talks have yielded little progress.

"China has yet to show any indication that it is ready to address US and global concerns about its structural issues," said Scott Kennedy, a China specialist at the Center for Strategic and International Studies told the AP news agency. "The two sides are pretty far apart."

Beijing has previously offered to increase its purchases of US products, notably soybeans and other agricultural goods as well as natural gas. This would help address Trump's concern about the gaping US trade deficit with China. Beijing could also open more industries to US companies and pledge better protection for US intellectual property. In return, China could press the US to remove the tariffs that Trump imposed last year.

Derek Scissors, a China expert at the American Enterprise Institute, said that China would likely accept such a deal if it were offered. Doing so would outweigh any concerns China has about Huawei.

"If they think they can get the deal that they want, they won't cancel the talks over Huawei," he said.